Myanmar microfinance loans capped at $500

Microfinance institutions in Myanmar are worried a new directive by the sector’s regulator that caps loans at 500,000 kyat (nearly $500) could stifle small business growth and the development of the burgeoning sector as it seeks to expand its role in the country, the Myanmar Times reported.

Myanmar’s microfinance sector has experienced a boost in the past two years with the establishment of internationally backed institutions looking to capitalise on the estimated 84 per cent of Myanmar’s population who have no access to financing. Those institutions were only recently regulated with the passage of a new microfinance law in November 2011, but international finance institutions view the sector as volatile due to the inability of the regulatory body, the Microfinance Supervisory Committee, to enforce responsible lending practices.

In an effort to ensure that the estimated 150 operating microlenders are fulfilling their mission to provide financing alternatives to the poor, rather than providing loans to established businesses, the commitee on January 14 issued a directive introducing a ceiling of about $500 per loan. The move surprised many in the industry, who said they will ask the supervisory committee to amend the new rule they claim will affect their respective bottom lines as well as the bottom lines of their clients.

According to the law, microlenders are restricted from offering loans over 2.5 per cent interest per month, or 30 per cent annually – a rate comparable to the global average and significantly lower than the 10 per cent per month loans offered by informal “loan sharks”. In addition to a set interest rate, the law stipulates on additional interest paid on deposits cannot be less than 1.25 per cent per month, or 15 per cent annually.

Based on limited data in the sector, the International Finance Corporation early last year estimated that the sector’s loan portfolio totaled $283 million spread over 2.8 million clients, with a market demand for microcredit at about $1 billion nationwide.

Microfinance institutions in Myanmar are worried a new directive by the sector’s regulator that caps loans at 500,000 kyat (nearly $500) could stifle small business growth and the development of the burgeoning sector as it seeks to expand its role in the country, the Myanmar Times reported.

Myanmar’s microfinance sector has experienced a boost in the past two years with the establishment of internationally backed institutions looking to capitalise on the estimated 84 per cent of Myanmar’s population who have no access to financing. Those institutions were only recently regulated with the passage of a new microfinance law in November 2011, but international finance institutions view the sector as volatile due to the inability of the regulatory body, the Microfinance Supervisory Committee, to enforce responsible lending practices.

In an effort to ensure that the estimated 150 operating microlenders are fulfilling their mission to provide financing alternatives to the poor, rather than providing loans to established businesses, the commitee on January 14 issued a directive introducing a ceiling of about $500 per loan. The move surprised many in the industry, who said they will ask the supervisory committee to amend the new rule they claim will affect their respective bottom lines as well as the bottom lines of their clients.

According to the law, microlenders are restricted from offering loans over 2.5 per cent interest per month, or 30 per cent annually – a rate comparable to the global average and significantly lower than the 10 per cent per month loans offered by informal “loan sharks”. In addition to a set interest rate, the law stipulates on additional interest paid on deposits cannot be less than 1.25 per cent per month, or 15 per cent annually.

Based on limited data in the sector, the International Finance Corporation early last year estimated that the sector’s loan portfolio totaled $283 million spread over 2.8 million clients, with a market demand for microcredit at about $1 billion nationwide.